Home buyer traffic fell 14% in December, on a trailing 12-month basis, according to a report out Thursday from
Credit Suisse.
The 14% decline in traffic follows a 12% fall in November. Existing home sales were down 10% year-over-year in December, after declining 7% in November.

The drop in sales is the steepest year-over-year decline since May 2011, according to economist David Rosenberg of Gluskin Sheff, who has been bearish on housing for some time. The six-month sale trends look worse, running at a -14% annualized pace, he wrote in a note to clients, arguing that housing momentum “is clearly negative.”

None of this might come as a surprise given the many pressures weighing on the market. Mortgage rates have risen, housing supply remains tight at 3.7 months (38% below equilibrium), and affordability is stretched—particularly in coastal areas where years of gains have pushed prices well beyond traditional affordability measures.

Sale prices are eroding. Median sale prices declined 1.4% in December, the fifth decline in six months, Rosenberg noted. That has shaved the year-over-year price growth trend to 2.9% from 4.1%, one of the quickest decelerations in nearly seven years, he said.

Granted, the market isn’t falling off a cliff. The median home value in December was $223,900, up 7.6% over the past year, according to real-estate listing service Zillow. That is up from about $150,000 in late 2011. Properties are sitting on the market an average of 78 days, down from 114 days in 2016. The mortgage delinquency rate is a low 1.1%, and just 8.2% of houses had negative equity—well below levels of a few years ago. The foreclosure rate has plunged to 1.2%, down from 6.3% in 2009.

Some local markets are holding up relatively well. Credit Suisse pointed to Sacramento, Denver, and Phoenix as regions that still looking relatively healthy. Migration from Silicon Valley and the Bay Area, with its nosebleed housing prices, is supporting the Sacramento market. Denver’s housing market continues to benefit from a vibrant local economy and strong demographic trends, as young people move to Colorado. Phoenix is seeing high job growth and demand from people moving out of high-cost California markets.

Several markets remain affordable: Minneapolis, Charlotte, Philadelphia, and Washington, D.C. rank among the highest for affordability, with 65%-73% of homes priced within an affordable range relative to median incomes, according to Credit Suisse. By contrast, just 6.4% of homes are affordable in San Francisco, 7.6% make the cut in Los Angeles, and 27.9% fall within the median income range in Miami.

Nonetheless, first-time home buyers, who are necessary to support overall growth in the market, *aren’t lining up to buy property. First-time buyers were 32% of the market in November, Rosenberg noted, well below the 40% levels that characterize a robust market. Long-term household formation trends look good, but that won’t necessarily translate to home purchases if affordability remains out of reach.

Despite these negative trends, investors appear to be taking a positive view of the industry. The
SPDR S&P Homebuilders ETF
(ticker: XHB)—a basket of builders, home-improvement retailers, and other housing-related stocks—is up 6.3% this year through Wednesday’s close. That follows a dismal 2018 in which the ETF lost 25.7%.

The ETF’s biggest individual-stock winners include water-heater company A.O. Smith (AOS), up 8.9%, home builderLennar
(LEN), up 11.5%, and
Whirlpool
(WHR), up 12.1%. Furniture rent-to-own company
Aaron’s
(AAN) is also faring well, gaining 13% this year through Wednesday’s close.

But some housing-related stocks have struggled lately. Tools maker
Stanley Black & Decker
stock (SWK) is down about 12% over the past few trading sessions, following the release of an underwhelming earnings report and guidance for 2019. Credit Suisse maintains an outperform rating on the stock. ”We look for results to improve as we move through 2019, making the pullback an attractive entry point,” analyst Susan Maklari said in a note. She has a price target of $155 on the stock, well above recent levels around $104.

Just don’t expect the stock to get there without a comeback in housing.

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